But the default and foreclosure problems in the valley are mild compared with inland counties where recent sales were dominated by first-time buyers who purchased with little or no money down. Many now find their payments rising and home values falling, making refinancing almost impossible. "Where we're seeing the biggest increase in defaults is in the Central Valley, the Inland Empire" and in Contra Costa County, said Delores Conway of the Lusk Center for Real Estate at the University of Southern California, who based her assessment on the changes from the second quarter to third quarter of this year. Defaults rose 49 percent in San Joaquin County last quarter, for example, from the previous one. In the other 1,172 ZIP codes, the median price dropped 2.5 percent from its high point in the second quarter of this year. "If there are foreclosures in the area, that changes home prices and it changes buyers' expectations," Conway said. "They sit on the fence even longer." And in the interrelated spiral of foreclosures, home prices and reluctant buyers, equilibrium is reached when prices have fallen enough and rents have risen enough that renting no longer makes sense, she said. But Conway said she doubts defaults have hit their peak yet: "It's going to take a while to work through this."
